Amplify Energy Corp. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; filed May 6, 2020. Amplify acquires, develops and produces oil, natural gas and NGLs across several U.S. regions. The August 2019 merger was accounted for as a reverse merger, with Legacy Amplify as accounting acquirer; therefore, the 2019 comparison is not a combined-company comparison and may not be directly comparable.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Oil and natural gas sales | $57.8 million | $65.1 million |
| Net loss | $367.2 million | $31.5 million |
| Operating loss | $359.4 million | $27.3 million |
| Operating cash flow | $13.1 million | $10.8 million |
| Capital additions to oil and gas properties | $12.4 million | $10.4 million |
| Adjusted EBITDA, non-GAAP | $17.2 million | $19.0 million |
| Debt at quarter-end | $290.0 million | $285.0 million at Dec. 31, 2019 |
At March 31, cash was $1.9 million and working capital was $60.7 million, substantially supported by $78.4 million of short-term derivative assets. The revolving credit facility had a $450 million borrowing base and approximately $160 million of available borrowings; the company reported covenant compliance. Total assets were $507.1 million and stockholders’ equity was $62.1 million, down from $877.5 million and $434.2 million, respectively, at year-end, chiefly reflecting the impairment charge.
Average net production increased to 29.7 MBoe/d from 21.5 MBoe/d, primarily due to the merger. Average realized sales price fell to $21.41/Boe from $33.67/Boe. Oil sales were $41.9 million, NGL sales $5.1 million and natural gas sales $10.8 million. Lease operating expense was $35.7 million ($13.23/Boe); gathering, processing and transportation was $5.1 million ($1.87/Boe); general and administrative expense was $8.4 million ($3.09/Boe). The filing does not present a single overall operating-margin measure.
Material changes and unusual items
- Revenue declined 10.8% year over year as lower commodity prices and reduced well activity offset higher production volumes. Average oil, NGL and natural gas prices were $42.64/Bbl, $11.29/Bbl and $1.43/Mcf, respectively, versus $53.28, $22.09 and $3.49.
- The company recorded $455.0 million of impairment expense: $405.7 million on proved properties, primarily from lower commodity-price assumptions, and $49.3 million on unproved properties, including expiring leases. No impairment was recorded in Q1 2019.
- A $107.7 million commodity-derivative gain was recognized, including a $95.2 million increase in fair value of open positions and $12.5 million of cash settlements received on expired contracts. Derivatives are not designated for hedge accounting, so fair-value changes affect reported earnings.
- Operating cash flow exceeded the prior-year quarter despite lower realized prices; Q1 2020 included $12.5 million of receipts on expired derivatives. Financing activities included $5.0 million of net revolver borrowings and a $3.8 million dividend payment.
Outlook, risks and subsequent events
- Management anticipated further market and commodity-price volatility through 2020 amid COVID-19-related demand weakness and uncertainty about whether OPEC/Russia production cuts would rebalance supply and demand. Lower prices reduce operating cash flow, may trigger further impairments and could adversely affect borrowing-base redeterminations.
- Management cited cost reductions, lower capital programs, monetization of some 2021 crude hedges, Beta royalty relief, PPP proceeds and suspension of the quarterly dividend as measures to navigate the downturn. The board suspended the dividend pending further notice.
- In April 2020, the company received a $5.5 million Paycheck Protection Program loan; it anticipated substantial forgiveness subject to eligible use and program requirements. It also monetized a portion of 2021 crude-oil hedges for approximately $18 million in cash.
- CEO Kenneth Mariani retired effective April 3, 2020; CFO Martyn Willsher became interim CEO while retaining the CFO role.
- The NYSE notified the company that its share price did not meet the $1.00 minimum standard. The filing states the cure period was extended to December 29, 2020 under temporary NYSE relief; failure to regain compliance could lead to suspension and delisting.
- Contractual minimum-NGL-volume shortfalls generated approximately $0.2 million of Q1 commitment-fee expense in Oklahoma; the company also accrued $0.3 million for an anticipated East Texas shortfall. Offshore California decommissioning obligations were supported by $161.3 million of surety bonds and $0.3 million of cash. No material litigation or environmental reserves were reported.
- Other key risks include production curtailments or shut-ins from transportation/storage constraints, counterparty and customer nonperformance, and potential tighter credit availability. The company reported no off-balance-sheet arrangements and effective disclosure controls as of quarter-end.
Investor verification points
- Confirm subsequent borrowing-base redeterminations, covenant status, available revolver capacity and liquidity after the quarter-end market shock.
- Review realized cash proceeds and remaining hedge volumes/prices after the April hedge monetization, and distinguish cash settlements from noncash mark-to-market gains.
- Assess reserve and asset-value sensitivity to commodity prices and whether further impairments or production curtailments occurred.
- Verify PPP loan forgiveness and the company’s obligations if any proceeds are not forgiven.
- Track NYSE minimum-price compliance and the status of the cure period, as well as the interim CEO transition.
- Evaluate the impact of suspended dividends, capital-spending reductions and minimum-volume commitments on future cash generation.